Loan Modification Tips for our Homeowners

This is the bank that is most likely to work with you.  Tell them that the first lien holder has refused to work with you, and you are going to lose the house if you cannot get the payment down somehow. (Don’t make it seem like you are in the process of a loan workout with the first lienholder or like your negotiations with the first are very promising.) It will encourage them to wait and see how much your payment on the 1st goes down before committing to anything.

You can usually search Google for Loss Mitigation / Loan Modification Application. 

When you call the bank, they will try and “prequalify you” for the loan modification by asking you about your expenses and income. DO NOT go through the financials on the phone.  Tell the representative you do not have your paperwork with you and call them back.

Do not discuss the financial worksheet with the bank on the phone until you have gone through the figures several times. To qualify for a loan modification, you have to be working and have income.  Your income has to be enough so that after paying all your monthly expenses, you still have enough left over to afford a good chunk of the current payment. If you earn too much income, the bank is going to want to know why you cannot keep up with your payments if you are showing that after expenses, you still have money left over at the end of the month. If you do not offer enough income to make a good portion of the principal and an interest payment you will not qualify. Remember, it is about what you spend, not what you earn. If you make $6,000 and you spend $6,100 a month, guess what? You’re in the red! They don’t want to modify the loan terms for someone who is not        going to be able to maintain the new payment long-term.

Make sure nothing is missing and that everything makes sense.  If you are self-employed, the paystubs (or financial statements) have to make sense with what you are showing on the bank statements and what the tax returns show.  Also, remember that they can see your initial loan application form when you first purchase.   

The loan is brought current, the past due balance is added to the loan amount, so you are up to date, and you try to start fresh. Sometimes the interest rate is lowered, but usually not by much (¼-½ a point). To qualify, the borrower financial worksheet has to verify that you are eligible.  It is helpful to first decide what you can afford to pay. Let's say your current payment is $3,500 and you can only afford $2,000. Once you pay all your monthly expenses (NOT including your current housing expense), how much money is left over that could be used towards your housing expense?   If you have $2,000 left over,  then modifying the loan terms to allow a $2,000 payment may not be so far fetched.  If you have $900 leftover for housing and your payment is $3,500, it won’t work.

The borrower’s financial worksheet is not filled in properly!

1. Do not include anything related to the current housing expense (the one you are trying to modify) in the borrower’s financial statement. They want to see your personal monthly fees vs. your income with NO housing expense so they can see what (if anything) you can afford to pay. If you add this current housing payment, insurance, and taxes, you will likely show you are negative each month. You cannot afford the housing payment as it stands now…That’s the whole point and why we are asking for the loan modification. If you did not have this monkey on your back, what income would you have available for the “modified/reduced” payment?  

2. People tend to maximize their expenses and minimize their income so that there is nothing left over at the end of the month. They will not modify the payment for a person who can only afford to pay zero dollars per month. This gets declined.   

3. If you lost your job or were laid off and have no income, you probably cannot do a loan modification.  

4. Figure out what you can afford to pay each month for your housing payment, including principal, interest, taxes, and insurance. Then, structure your monthly expenses to where THAT amount is precisely what is leftover at the end of the month after paying all expenses.  If your current payment is $3,500 and you want it to be $2,500, then make sure you have $2,500 leftover for a housing expense once you pay all your monthly bills. On a loan modification, you don’t want to make it seem you have nothing at the end of the month because that means you can't afford anything in terms of a housing expense.  

5. If you have a “pay option arm,” or a “pick a pay," and cannot afford the “minimum monthly payment,” which is usually based on a 1-3% interest rate, the loan modification won’t work.    

Certain expenses are verifiable and fixed. For example:

•  your car payment
•  the insurance on your house 
• credit card payments

These are on your credit report and must be accurate to the penny. Other expenses are based on a 12-month average or your estimation of the cost…..These are subjective and open to interpretation. 

Your groceries and toiletries expense: Lots of room to include every single thing or to count the basics. Maybe I included the cost of nail polish, cologne, toothpaste, conditioner, Tylenol, my Estee Lauder face cream, etc. Perhaps you thought they meant just grocery (food) like milk, bread, and cheese. It may be all-inclusive and super high, or if you need it to be lower, perhaps include essential food products for consumption. 

Your electric expense: This varies. It might be $200 in the winter and $600 in the summer when the pool pump runs all day. Lots of room for adjustment here. 

Child care and tuition expense: If your child goes to private school or you pay their college tuition, this goes there. 

"But what if I need more expenses?  Couldn’t my child’s Tae Kwan Do class three times per week be considered a 'child care expense?'"

 What about what it costs for your son to play football?  While you are working, he plays football because you don’t want him sitting home alone after school. This is a child care/tuition expense.  Maybe mom takes care of the kids after school, and in exchange for this, you pay her car payment each month….Couldn’t this too be considered a child care expense? Yes.  

Phone bill:  This is vague.  If I need to keep the expenses low, I might just put my home phone bill for $37.  If I needed the phone expense to come in higher, I might interpret “phone” expenses as my husband’s cell phone; the kids each have a cell phone, my landline at home, and my internet service provider.  It does not specify. It just says “phone expense." Use the vague and subjective expenses to get the financial picture to look like you need it to, without being dishonest and making up expenses that don’t exist.